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Janet Reno (Reuters file photo)

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FEC Audit Led to New Clinton Probe

By Roberto Suro and Ruth Marcus
Washington Post Staff Writers
Friday, September 4, 1998; Page A01

Attorney General Janet Reno launched a new review of whether President Clinton violated campaign financing laws after Federal Election Commission auditors concluded this summer that his 1996 reelection illegally benefited from massive Democratic Party advertising and should repay the entire $13.4 million it received in federal matching funds, lawyers familiar with the inquiry said.

The FEC auditors, in a preliminary report subpoenaed by the Justice Department that started Reno's inquiry on whether to appoint an independent counsel, concluded that the so-called issue advertisements paid for by the Democratic National Committee clearly contained messages intended to promote Clinton's reelection, were closely coordinated with the Clinton campaign and should be counted against his campaign expenditures.

Clinton himself took a direct hand in crafting the DNC's $44 million ad campaign in late 1995 and early 1996 and because of that, sources said, the Justice Department's review is proceeding from the idea that Clinton is irrevocably connected to the allegations in the FEC report. The FEC report triggered the Justice review because the department has a 20-year-old policy of deferring to the FEC on questions about what constitutes violations of election law.

Reno has repeatedly considered – and rejected – requests that she seek an independent counsel to investigate Clinton on the grounds that the DNC advertising constituted an illegal effort to evade campaign spending limits. She began to reassess that position soon after the Justice Department received the FEC auditors' report about three weeks ago.

The attorney general has until the middle of next week to determine whether the FEC report suggests criminal wrongdoing. If she decides it does, Reno will move to the next stage of the independent counsel process, a 90-day preliminary investigation.

In the past week, Reno has separately ordered two such preliminary investigations – involving possible false statements by Vice President Gore and former White House deputy chief of staff Harold M. Ickes about their fund-raising activities. Officials said that if she decides an independent counsel is warranted in more than one of the cases she would probably consolidate the probes.

Sources have said that Clinton's personal attorney, David E. Kendall, met with top Justice officials Wednesday in an effort to convince them that if a formal inquiry does move forward, it should proceed against the 1996 campaign organization and not the president himself.

At her weekly news conference yesterday, Reno said the department had received "new information" relating to the campaign finance inquiry. An official later said she was referring to the FEC auditors' report prepared as part of the review they perform on every presidential campaign.

Although the audit is still in the preliminary stages, its conclusions set off alarm bells at the Justice Department. Reno's former chief prosecutor for campaign finance issues, Charles G. LaBella, and FBI Director Louis J. Freeh have followed a similar analysis of the advertising campaign to formally recommend appointment of an independent counsel. Congressional Republicans have seized on those recommendations to step up pressure on Reno to seek an outside prosecutor.

The DNC ad campaign touching on issues such as the budget and Medicare featured only one candidate – Clinton – and Clinton himself credited it with securing him an early lead in the polls. During weekly sessions at the White House, Clinton – joined by the top consultants and officials of his reelection team – would go through the ads, offering suggestions and editing some scripts.

The auditors found that the DNC advertising should count against the Clinton campaign's spending limits because it contained an "electioneering message," meaning that it was "designed to urge the public to elect a certain candidate or party." Sources also said the FEC auditors reached a similar conclusion about the 1996 GOP campaign of Robert J. Dole and Republican Party issue advertising. The Dole campaign received $13.5 million in federal matching funds.

The report is a preliminary conclusion that FEC auditors show to the Clinton-Gore campaign to receive its comments. The auditors then submit recommendations to the six-member commission, which would have the final say. While it is common for the commission to find that presidential campaigns exceeded spending limits and therefore must repay a portion of their matching funds, it would be extraordinary for the FEC to rule that the entire amount is due back.

In return for matching funds, presidential candidates agree to abide by strict spending limits during the primary campaign. In 1996, the ceiling was $37 million, and, under the FEC auditors' analysis, the DNC's additional $44 million advertising blitz went far beyond the legal limits.

In previous statements rejecting calls for an independent counsel, Reno has said she is guided by the FEC's analysis of election laws and has pointed to FEC rules that permit parties to engage in such advertising. Justice Department officials said yesterday that – as a result of Reno's previous reliance on the FEC – the auditors' approach obligated her to reopen the issue.

"She's always hung her hat on the interpretation of campaign finance law put forward by the FEC, and so she can't say, 'We're just not going to pay attention' when something like this comes along," said one official.

However, the question of whether the party advertising campaign should have been counted against Clinton's primary spending limits is far different from the issue of whether it constitutes a criminal violation for Clinton, campaign officials and the party to have engaged in the advertising campaign.

The question of how far political parties and outside interest groups may go in their "issue advertising" – commercials that do not explicitly call for the election or defeat of particular candidates – is one of the murkiest in the field of election law.

Reno herself said at a Senate oversight hearing in July that "to establish a criminal violation, we have to show that the defendant acted knowingly and willfully, that he consciously violated the law. The law governing these allegations is far from clear, and it is impossible to conclude, on what we know, that anyone could have violated it knowingly and willfully."

However, according to sources familiar with his report, LaBella has argued that the Clinton campaign conceived of and implemented the party advertising as a way to get around the primary spending limits and that, no matter what the lawyers advised, it can be seen as an illegal effort to defraud the United States.

DNC general counsel Joseph Sandler, who reviewed the party's advertising during the campaign, said yesterday that "it's crazy to think" in terms of a criminal violation. "The FEC is the agency that Congress has designated to make these determinations. To say you're going to launch a criminal investigation every time two lawyers disagree about something like that is completely untenable."

Clinton campaign counsel Lyn Utrecht said the auditors' report contained factual errors, including citing as evidence of abuses some DNC ads that were paid for out of funds the party is allowed to use to directly advocate the presidential candidate's election. She also said the report did not take into account a 1995 FEC opinion that laid out ground rules for parties to engage in just such issue advocacy campaigns.

"It's just way too preliminary to mean anything," she said.

In a statement, the Clinton-Gore campaign called the ads "an entirely legal and perfectly appropriate way to communicate with the American people" and said "there is absolutely no reason to appoint an independent counsel to review them."

© Copyright 1998 The Washington Post Company

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